CHAPTER 24 Differential Analysis and Product Pricing
Ex. 24–15 (FIN MAN); Ex. 9–15 (MAN)
a.
Differential
Reject Accept Effect
Order Order on Income
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues $0 $1,840,000 $1,840,000
120,000 tires × $92 per tire
220,000 tires × $38 per tire
Goodman should accept the special order from Euro Motors.
Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
January 21, 2014
1
24-21
CHAPTER 24 Differential Analysis and Product Pricing
Ex. 24–16 (FIN MAN); Ex. 9–16 (MAN)
…
Ex. 24–17 (FIN MAN); Ex. 9–17 (MAN)
*($215 manufacturing variable cost per unit × 10,000 units) + $350,000 manfacturing
fixed cost
d. Cost amount per unit………………………………………………………………
…
$250
Desired Profit +
Desired Profit +
c. Markup Percentage = Total Selling and Administrative Expenses
Total Manufacturing Costs
c. Total Selling and Administrative Expenses
Total Manufacturing Costs
Markup Percentage =
24-22
CHAPTER 24 Differential Analysis and Product Pricing
Ex. 24–18 (FIN MAN); Ex. 9–18 (MAN)
a. The price will be set at the estimated market price required to remain
b. The required profit margin of 20% of the estimated $28,000 price implies a
$22,400 target product cost as follows:
24-23
CHAPTER 24 Differential Analysis and Product Pricing
Ex. 24–19 (FIN MAN); Ex. 9–19 (MAN)
$460 – $230
$230
$30
a.
Historical markup percentage on product cost: = 100%
24-24
CHAPTER 24 Differential Analysis and Product Pricing
Ex. 24–20 (FIN MAN); Ex. 9–20 (MAN)
Determine the contribution margin per furnace hour as follows:
Revenue……………………………………
…
$43,000 $49,000 $56,500
*Calculated as follows:
$1.80
Type 5 Type 10 Type 20
Type 5: = $0.30 per furnace hour
24-25
CHAPTER 24 Differential Analysis and Product Pricing
Ex. 24–21 (FIN MAN); Ex. 9–21 (MAN)
a. Large Medium Small Total
Units produced…………………… 3,000 3,000 3,000
Revenues…………………………
…
$552,000 $480,000 $300,000 $1,332,000
b. The Small glass product is the most profitable in a bottleneck operation,
demonstrated as follows:
Large Medium Small
Contribution margin………………………………
…
$54 $40 $24
24-26
CHAPTER 24 Differential Analysis and Product Pricing
Appendix Ex. 24–22 (FIN MAN); Appendix Ex. 9–22 (MAN)
a. Total costs:
V
ariable ($240 × 10,000 units)……………………………………………
…
$2,400,000
Desired Profit
Total Costs
c. Cost amount per unit…………………………………………………………… $289
Appendix Ex. 24–23 (FIN MAN); Appendix Ex. 9–23 (MAN)
a. Total variable costs: ($240 × 10,000 units)………………………………… $2,400,000
b.
Markup percentage =
24-27
CHAPTER 24 Differential Analysis and Product Pricing
Prob. 24–1A (FIN MAN); Prob. 9–1A (MAN)
1.
Operate Differential
Retail Invest in Effect
Store Bonds on Income
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues $1,264,000 $172,800 –$1,091,200
Costs:
3. Total estimated revenue from operating store…………
…
$1,264,000
Total estimated expenses to operate store:
Differential Analysis
Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2)
October 1, 2014
PROBLEMS
12
24-28
CHAPTER 24 Differential Analysis and Product Pricing
Prob. 24–2A (FIN MAN); Prob. 9–2A (MAN)
1.
Continue Replace Differential
with Old Old Effect
Machine Machine on Income
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues
Proceeds from sale of old machine $ 0 $ 26,800 $ 26,800
Costs
2. Other factors to be considered include:
a. Are there any improvements in the quality of work turned out by the new
machine?
b. What effect does the federal income tax have on the decision?
c. What opportunities are available for the use of the $84,200 of funds ($111,000 less
$26,800 proceeds from the old machine) that are required to purchase the new
machine?
Differential Analysis
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
April 30, 2014
24-29
CHAPTER 24 Differential Analysis and Product Pricing
Prob. 24–3A (FIN MAN); Prob. 9–3A (MAN)
1.
Differential
Promote Promote Effect
Moisturizer Perfume on Income
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues $1,152,000 $1,040,000 –$112,000
Costs:*
Direct materials –192,000 –260,000 –68,000
Essence of Esther should promote moisturizer.
2. The sales manager’s tentative decision should be opposed. The sales manager
erroneously considered the full unit costs instead of the differential (additional)
Differential Analysis
Promote Moisturizer (Alt. 1) or Promote Perfume (Alt. 2)
August 21, 2014
12
24-30
CHAPTER 24 Differential Analysis and Product Pricing
Prob. 24–4A (FIN MAN); Prob. 9–4A (MAN)
1.
Process
Further into Differential
Sell Raw Refined Effect
Sugar Sugar on Income
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues, per batch $58,800 $73,920 $15,120
Differential Analysis
Sell Raw Sugar (Alt. 1) or Process Further into Refined Sugar (Alt. 2)
March 24, 2014
12
24-31
CHAPTER 24 Differential Analysis and Product Pricing
Prob. 24–5A (FIN MAN); Prob. 9–5A (MAN)
1. $225,000 ($1,500,000 × 15%)
2. a. Total manufacturing costs:
V
ariable ($200* × 5,000 units)…………………………………………………
…
$1,000,000
b. Markup Percentage =
Total Selling and Administrative Expenses
Desired Profit +
Total Manufacturing Costs
24-32
CHAPTER 24 Differential Analysis and Product Pricing
Prob. 24–5A (FIN MAN); Prob. 9–5A (MAN) (Continued)
3. (Appendix)
a. Total costs:
V
ariable ($235 × 5,000 units)……………………………………………… $1,175,000
Desired Profit
Total Costs
c. Cost amount per unit…………………………………………………………
…
$315
4. (Appendix)
c. Cost amount per unit…………………………………………………………
…
$235
5. The cost-plus approach price of $360 should be viewed as a general guideline
Desired Profit + Total Fixed Costs
Total Variable Costs
b.
b. Markup Percentage =
Markup Percentage =
24-33
CHAPTER 24 Differential Analysis and Product Pricing
Prob. 24–5A (FIN MAN); Prob. 9–5A (MAN) (Concluded)
6. a.
Differential
Reject Accept Effect
Order Order on Income
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues $0 $180,000 $180,000
Costs:
Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
August 3, 2014
24-34